Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich - Jason Zweig

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Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich - Jason Zweig

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Do you fret over the value of your investments on a daily basis? Do you buy stocks based on a "hunch" or a gut feeling? According to Zweig, the latest scientific evidence shows that this common behavior usually results in financial loss and is caused by the way our brain reacts when we think about money. According to recent research in the emerging science of "neuroeconomics," the pleasure center in the brain that is stimulated in anticipation of "the big payout" is the same area that is affected during sex or drug use and is responsible for the addiction to gambling. Our brains, which evolved more than 200,000 years ago to react quickly to patterns and minute changes in our environment, are not equipped to handle the randomness of the stock market; but nevertheless we attempt to create meaningful patterns where there are none and base our investment decisions on erroneous assumptions. The good news is that awareness of this phenomenon can make us better investors, and Zweig offers some simple tips to avoid the pitfalls, such as taking the long view and avoiding overtrading. Siegfried, David

Starred Review. It's tempting to blame your upbringing or your stingy boss, but the real culprit in your flawed relationship with money is your very own brain, argues finance writer Zweig. Combining concepts in neuroscience, economics and psychology, he explains how our biology drives us toward good or bad investment decision. Our brains are pretty self-deceptive, it turns out: we have difficulty admitting our lack of knowledge about finances; we overestimate our own wisdom and performance; and our preference for mistakes of action rather than inaction often leads us to irrational investment decisions. Most tellingly, humans believe we're smart enough to forecast the future even when we have been explicitly told that it is unpredictable. Among the book's fun facts: the MRI brain scan of a cocaine addict is virtually identical to that of someone who thinks he is about to make money. Backed by stellar research and written in an entertaining, informal style that makes a complex subject accessible to the layperson, Zweig makes clear how we can understand what our brains are doing and how to use that knowledge to get out of our own way and invest wisely. (Sept.)